Greenhouse Action in an Uncertain International Environment

It is a pleasure to be here in Australia. And I must say it is a relief to get out of the United States, if only for a brief time. Washington politics, as always, seem to be highly partisan, and highly unproductive. The perpetual squabbling between the two political parties reminds me of the story of the young boy who comes home from school with a black eye and torn clothes.

"Which one of you started the fight?" asks his mother.

The boy's response: "It started when the other guy hit me back."

I am also glad to be here because it gives me a chance to escape a typically hot and muggy Washington, DC summer. I actually have a theory that President Bush is reluctant to embrace strong action on global warming because of his avowed interest in shrinking the United States government. You see, the hotter it gets in the summer, the fewer people will want to work in Washington. And the more likely they will be to move to Alaska, where they can engage in more productive pursuits such as drilling for oil.

There may be another reason for the President's reluctance to make this issue a priority. If sea levels rise, as predicted in a warmer world, it is possible that parts of America's East and West coasts will be covered by water. Among the states that will face problems will be such Democratic and left-leaning bastions as California, Massachusetts, New York and Maryland. Coincidence? I think not.

Okay, that is probably enough joking around, and I should move on to the subject at hand. Today I would like to talk about what is happening on the issue of climate change, and why we need to make sure we are doing all we can to address this monumental challenge. I want to touch first on the science of climate change-and, more specifically, on the ever-solidifying scientific consensus that this is a very serious problem that demands very serious action. And then I would like to talk about the importance of effective-and mandatory-efforts to reduce greenhouse gas emissions on a country-by-country basis.

Our goal, as I will discuss, must be to facilitate the arrival of a second industrial revolution. This means doing all we can to accelerate the development of new technologies that will move us closer to a low-carbon world economy.

The Science of Climate Change: A Few Observations

With that, I will proceed directly to a brief discussion of the science of climate change. The Intergovernmental Panel on Climate Change (or IPCC) is a body created by the United Nations to reach scientific consensus about the magnitude and nature of the climate problem. In its Third Assessment Report, approved in January of this year, the IPCC said it now expects the global average surface temperature to rise by between 2.5 and 10 degrees Fahrenheit over the course of the 21st century. This is a much greater increase than the rate projected just five years ago. Even at the low end of the projection, the warming trend is expected to cause significant problems. And the higher-end projections of 10 degrees or more could prove catastrophic.

In a series of reports on the potential environmental impacts of climate change, my organization has looked at such issues as how ecosystems, agriculture and water supplies will be affected. From these assessments, we know that climate change will result in significant shifts in agricultural production because of temperature changes and a probable increase in extreme weather events. We also know that climate-induced changes in the water cycle will affect the availability of water to meet growing demand-which I know is a very real concern here in Australia. And we know that fragile ecosystems will be adversely affected. Consider the problem of coral bleaching, which is already draining the life out of coral reefs in Australian waters and throughout the world-in part, scientists say, because of warming ocean temperatures.

After issuing its new projections of temperature increases around the globe, the IPCC in February released a report that looked at the possible effects of these changes. The report warned of droughts, floods, and increasingly violent storms-all as a result of global warming. This is in addition to a projected sea level rise of up to 3 meters as the West Antarctic and Greenland ice sheets melt. We are just beginning to come to grips with the potential impacts of this degree of sea level rise and how it will affect low-lying coastal areas throughout the world. As you might expect, this is more than a passing concern in developing countries such as Bangladesh, where even a one-meter rise in sea-level would inundate 17 percent of the country.

Studies from the IPCC and others also confirm that greenhouse gases produced by human activities, mainly the burning of fossil fuels, are the principal cause of the continuing warming trend.

I must note here that it is not just U.N.-appointed scientists who are saying these changes are taking place. Just last month, a prestigious panel of U.S. scientists seconded the findings of the IPCC in a study specifically requested by the Bush White House. Even more support for the IPCC findings came in a study just a couple of weeks ago from Tom Wigley of the National Center for Atmospheric Research and Sarah Raper of the University of East Anglia in England. Their conclusion is that there is a 9-in-10 chance that the global average temperature will rise 3 to 9 degrees in the coming century, with a 4-to-7 degree increase most likely.

The bottom line is that if we need a reason to act on this issue, the latest science certainly provides one. The fact that there is uncertainty about exactly how much temperatures will rise or what the precise effects will be should be expected. This is science after all-and science very naturally is built on hypothesis and conjecture. But, increasingly, the science tells us we would be irresponsible not to take the threat of climate change very seriously.

The Significance of the "Kyoto Compromise"

At the same time that we have seen a dramatic and ever-solidifying consensus emerge among scientists about climate change, we have seen the world community-minus one very important player-finally agree on a set of first steps to address the problem.

As all of you know, earlier this month in Bonn, Germany, 178 nations reached a compromise on the rules that will allow the Kyoto Protocol to enter into force. The Protocol, of course, is the agreement first negotiated in 1997 that requires countries to reduce or limit their emissions of greenhouse gases in relation to 1990 levels, with different countries agreeing to different targets. Australia, as you know, actually agreed to a target whereby emissions would be allowed to grow by 8 percent from 1990 to the period between 2008 and 2012. This compared to a business-as-usual scenario where emissions would have grown by significantly more.

In addition to establishing targets, the Kyoto Protocol outlines how countries can achieve their targets-for example, by making real emission reductions at home, by trading emissions credits with others, and by using "sinks" such as farms and forests to remove carbon from the atmosphere. Although many of the details on how these mechanisms will work still need to be decided, the compromise reached in Bonn will likely provide countries with a high degree of flexibility in how they use these various strategies. And this, I believe, is a very important and positive development, since it will permit countries and businesses to meet their objectives in the most cost-effective ways.

But the Kyoto Protocol, as I have already noted, is just a first step on what will be a long march to a less carbon-intensive world. Its initial targets for emissions reductions take us only to the 2008-2012 period, and they represent just a very small down payment on the level of emissions reductions that scientists say we must achieve in order to have a real effect on mitigating climate change.

The ultimate impact of the Kyoto Protocol also will be severely limited by the United States government's decision not to be party to the agreement. The Bush Administration has said repeatedly that it believes Kyoto is fatally flawed and not acceptable to the United States. Granted, the Protocol does have its problems-it is, after all, an agreement of approximately 180 countries with differing aspirations, differing economies, and differing views of the environment. But I believe that the other nations of the world, in agreeing to a compromise solution in Bonn, decided to send a message to the United States that an imperfect agreement is better than none-and that we cannot wait any longer to take this crucial first step to solving the most important environmental issue facing the world today.

Still, for the global effort to address this issue to be truly effective, the United States, which is the largest generator of greenhouse gas emissions, ultimately will have to have an effective program in place to reduce its emissions, and hopefully, an interest in participating in a global agreement. In addition, many countries in the developing world will have to play larger roles in reducing global emissions in the years ahead. As these nations develop, they will need to do so in ways that are less carbon-intensive and more efficient. This is a challenge they do not face alone-the time has come for all nations of the world, developing or already developed, to consider how best to grow their economies while at the same time reducing the impact of their growth and development on the global environment.

A Second Industrial Revolution

An international framework is an essential element in any effort to address global climate change. We are dealing with a global problem, and it requires a global solution. But the ratification and entry into force of the Kyoto Protocol will not alone produce results. It must be accompanied by domestic action in all countries to reduce or limit greenhouse gas emissions through innovative tax policies, mandatory requirements, and other steps.

It is these types of measures, I believe, that will play an enormously important role in speeding the advent of what I refer to as a second industrial revolution. This will be a revolution characterized more than anything else by a growing reliance on low-carbon and even no-carbon energy sources to power the world's continuing economic development and growth.

At the same time that we must embrace the possibility of "decarbonizing" our economies, we must also be realistic about what can be done and in what time frame. All of our countries will continue to use petroleum and coal for many years to come. The challenge with respect to these traditional fuel sources will be to promote ever-increasing levels of efficiency and conservation at the same time as we work to develop and deploy cleaner energy sources for the future. Looking at coal, which today accounts for 84 percent of electricity generation here in Australia (and 31 percent in the United States), we need to find and embrace cleaner-burning ways of using it. And we need to think seriously about sequestering coal-related carbon dioxide emissions.

But these steps will clearly not be enough. The bottom line is that we need new technologies to meet the energy and environmental challenges we face. To effectively address climate change, we need to lower carbon intensity, become more energy efficient, promote carbon sequestration, and find ways to limit emissions of non-CO2 gases. This will require fundamentally new technologies, as well as dramatic improvements in existing ones. New, less carbon-intensive ways of producing, distributing and using energy will be essential. The redesign of industrial processes, consumer products and agricultural technologies and practices will also be critical.

These changes can be introduced over decades as we turn over our existing capital stocks and establish new infrastructure. But we must begin making investments, building institutions, and implementing policies now.

Creating the international framework that will encourage and enable these actions is an essential step. This is why the compromise reached in Kyoto this month is so important. But in the end, what truly matters is what individual countries and individual businesses (and even individuals) do to reduce their individual contributions to the problem. Just as we need legally binding commitments at the global level, it is, yes, mandatory that we enact mandatory programs on a country-by-country basis. In the United States, we have had voluntary efforts in place for much of the past decade, and still we have seen a dramatic rise in emissions - almost 12 percent over 1990 levels. In Australia, it is much the same. Despite a strong government effort to enlist industry in voluntary emission reduction programs, emissions here have risen to 18 percent over 1990 levels.

Industry Takes the Lead

This is not to discredit or discount the important steps that many companies are taking to reduce their greenhouse gas emissions on a voluntary basis. About half of the 36 companies that are part of the Pew Center's Business Environmental Leadership Council have set specific, quantitative targets to reduce their greenhouse gas emissions, and others are working toward establishing these objectives. Consider DuPont, a corporation that is well on its way to achieving its goal of reducing carbon dioxide emissions by 65 percent before 2010, relative to 1990 levels.

Other companies, too, are making process and efficiency improvements that are yielding real reductions in emissions. The energy company Enron, for example, reduced its greenhouse gas emissions by controlling leaks in its natural gas pipelines. And TransAlta Corporation improved its energy efficiency by about 4 percent when it upgraded old, less efficient turbines and other systems.

In addition to these types of steps, some companies are investing in dramatic changes to their production processes. Alcoa, for example, is developing a new technology for smelting aluminum that, if successful, will allow the company to reduce its greenhouse gas emissions to half their 1990 levels over the next nine years. Similarly, Shell aims to achieve its greenhouse gas reduction target by revamping its disposal of the waste gases resulting from oil and gas production.

Still other companies are venturing into new markets or shifting their business focus entirely. ABB is a $25 billion Swiss business-to-business supplier that has divested itself of traditional, large-scale power generation businesses. Instead, the company now supplies distributed energy solutions, such as combined heat and power technology, fuel cells, microturbines, and wind power plants. Likewise, Shell is planning a long-term transition into the renewable energy market, having invested $1 billion in renewables to date.

All of these are important developments-and they show how increasing numbers of leading companies see a clear business interest both in reducing their emissions and in helping to shape the energy economy of the future. Interestingly, if you look at who's paying the most attention to these issues, you find that industry and not government seems better prepared to lead the way to low- or no-carbon energy solutions. Even some of the largest oil companies are investing in the technologies and experimenting with the strategies that will ultimately decarbonize the energy economy and move us from petroleum-based fuels to hydrogen and other sources.

Industry, I believe, is leading the way because these companies are, by necessity, more nimble and more innovative than government, and more attuned to what the future holds. This does not mean there is no role-or even a minimal role-for the world's governments in ensuring that the process moves ever forward. To quote from a series of articles on the global energy future in The Economist: "The invisible hand may be ascendant, but that does not mean that the visible one has become irrelevant."

The Role of Government Action

The voluntary steps that are being taken by the leading companies throughout the world are dramatic and important, but they are obviously not enough. Government can and must play a critical role in establishing the ground rules for the energy economy of the future. These ground rules, in turn, will help to send signals to industry about the need to develop and deploy new technologies.

In the end, there is little incentive for any company to undertake real action unless, ultimately, all do-and unless all are in some manner held accountable. Markets, of course, will be instrumental in mobilizing the necessary resources and know-how. Market-based strategies such as emissions trading will also help deliver emissions reductions at the lowest possible cost. But markets can move us in the right direction only if they are given the right signals.

I already mentioned the most recent IPCC projections-temperature increases of up to 10 degrees worldwide, together with the accompanying impacts on sea level and weather extremes. As these impacts become more real to people, and as governments and businesses begin to come to terms with the dramatic effect of climate change on our economies and our communities, I believe we will see a dramatic increase in attention and investment going to those energy sources that hold the potential of reducing carbon output and mitigating climate change. This may not happen next year or the year after that, but it will surely happen, because there is only so long that the world-or even one country-can remain in denial about the serious and undeniable threats posed by our changing climate.

In closing, I want to make it clear that the future I am talking about is not a future in which the world uses less energy. Rather, it is a future in which economic growth begins to occur independently of the steady growth we have seen in carbon dioxide emissions. And it is a future in which we realize once and for all that we can indeed achieve our goals for our economies and our businesses while at the same time protecting the global environment.